Can Google Chromebooks Undercut the Surface Pro 3?

The Microsoft (NASDAQ:MSFT) marketing apparatchik has already mobilized to aggressively market the Surface Pro 3 as the “tablet that can replace your laptop.” The Surface Pro 3 landing page even features a tab for directly comparing this machine against the Apple (NASDAQ:AAPL)MacBook Air.

The Surface Pro 3 advertising campaign, however, may be somewhat misleading. In terms of pricing, the Surface Pro 3 machine should be matched up directly against the premium MacBook Pro laptop. In terms of bargain bin value, it is the Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Chromebooks series of laptops that pose an immediate threat to Surface Pro 3 sales. Google has outflanked both Apple and Microsoft in this latest technological revolution towards cloud computing.

The cloud-computing revolution

Microsoft has recently made its Surface Pro 3 machine available for pre-order. The 64GB – Intel (NASDAQ:INTC) i3 Surface Pro 3 tablet begins at $799.00. From there, the top-of-the-line 512GB – Intel machine retails for $1,949.00. Surface Pro 3 Type Covers, or functional keyboards, are sold separately for $129.99. Be further advised that MacBook Pro prices range from between $1,199.00 and $2,599.00. MacBook Pro computers feature similar, if not superior, technical specifications to comparably priced Surface Pro 3 tablets. Taken further, the MacBook Pro is yet another gateway into the popular Apple ecosystem for gaming, telecommunications, work productivity, and music.

Technically proficient consumers may gravitate towards cloud computing for mobility and cost cutting effectiveness. Cloud computing grants access to virtual servers – for the storage and retrieval of files from smartphone, tablet, laptop, and desktop machines. The Google business model is especially attractive to value conscious consumers, because the company literally gives product away, in order to drive traffic towards its higher margin Search and online advertising businesses. In terms of cloud software, Google Drive competes directly against Microsoft Office. The Google Drive suite includes Docs, Sheets, and Slides, which are free applications comparable to Word, Excel, and Power Point. Consumers may access these various applications through centralized Google Accounts.

Google Chromebooks have suddenly arrived as a growth driver within the computing market. Chromebook owners, of course, must register through Google Accounts, prior to making full use of these laptop machines. Google is now aggressively promoting the HP(NYSE:HPQ)Chromebook 11. Google has highlighted the ease of connectivity between the Chromebook and an Android ecosystem that captures more than half of the U.S. smartphone market. Perhaps most importantly is the fact that HP Chromebook 11 computers now retail for a mere $279.00. The Surface Pro 3 cannot compete.

The bottom line

Microsoft executives now appear desperate do build out mobile business, at the same time that the personal computer market degenerates further into secular decline. The Microsoft Commercial Licensing unit has generated a staggering $28.3 billion in operating profits off $30.8 billion in revenue through the first nine months of fiscal 2014. The Microsoft Commercial Licensing operating segment covers server products alongside the volume licensing of Windows and Office. In all, Microsoft posted $44.1 billion in operating profits upon $63.5 billion in revenue through the first three quarters of 2014.

Alternatively, Microsoft Devices and Consumer Hardware accounted for $875 million in operating profits off $8.2 billion in revenue through the same nine-month time frame. Microsoft includes sales of its popular Xbox gaming console alongside the Surface within its Devices and Consumer Hardware operating segment. A weak market response to the Surface Pro 3, of course, will do nothing to change what is now a fifteen-year track record at Microsoft.

Going forward, Microsoft will continue to perform as a beta stock that simply keeps pace with the S&P 500 Index, while also returning larger shares of capital back to shareholders through buybacks and dividends.